alexpgp | On the nature of pennies...

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kitiara, I read a letter a little while ago from one "Mr. Bravo" on "What use is a penny?"

The upshot of the post was that currency and coinage could be simplified by dropping the penny, and apparently, the nickel as well. While that's true as far as it goes, there would be even greater simplification if you eliminated coins completely, no? However, the last time I looked, simplification, while convenient, is not the paramount reason behind a system of currency.

In my opinion, if the penny (not to mention the nickel) were to be eliminated, the economic consequences of such a move would not be pleasant, especially for people making minimum wage, which makes all the more strange a supplemental point marshaled by Mr. B, to wit:

What earthly reason could there be for monetary increments less than the value of one minute of a minimum wage (~$6/hr) laborer’s time?

The answer: because there are things out there that are worth less than one minute of such a laborer's time!

Case in point: the increase in the cost of a postage stamp.

The U.S. post office was required by a 2003 law to cough $3.1 billion into an escrow account annually, which explains the 2-cent increase earlier this year, from 37 cents for a first-class stamp, to 39 cents (a little over 5%). Without pennies, the minimum increase could only be a nickel, or about 12%. Without nickels as well, the minimum increase would result in a nearly 30% increase the price of a stamp.

You tell me, which alternative is best for someone making the minimum wage? (Sure, the quantity of money we're talking about is small, but I'm trying to get at the principle.) Which alternative is best for keeping the seller in check?

The problem with the general argument, i.e., that it makes no sense to have pennies around if there's nothing of value that can be bought with anything less than five pennies, is that there are things of value out there that can be bought for less than five pennies (from the consumer's perspective), or accumulated from payments of less than five pennies (from the government's perspective). Like it or not, pennies do add up.

Cheers...